Comparison Between Public and Private Sector Banks

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University of Connecticut

Economics Working Papers Department of Economics


Productivity Growth and Efficiency in Indian Banking: A Comparison of Public, Private, and Foreign Banks
T.T. Ram Mohan
Indian Institute of Management, Ahmedabad

Subhash C. Ray
University of Connecticut

Recommended Citation
Mohan, T.T. Ram and Ray, Subhash C., "Productivity Growth and Efficiency in Indian Banking: A Comparison of Public, Private, and Foreign Banks" (2004). Economics Working Papers. Paper 200427.

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In the single-output, single-input case, it is merely the ratio of the firm’s output and input quantities. Thus, if, in period 0, a firm produces output yo from input xo , its productivity is

Π0 =

y0 . x0


Similarly, in period 1, when output y1 is produced from input x1, the productivity is

Π1 =

y1 . x1


Moreover, the productivity index in period 1, with period 0 as the base, is

π1 =

y y y x Π1 = 1 1 = 1 0. Π 0 y 0 x 0 x1 x0


This productivity index shows how productivity of the firm has changed from the base period. The rate of productivity growth is the difference in the growth rates of the output and input quantities respectively. When multiple inputs and/or multiple outputs are involved, one must replace the simple ratios of the output and input quantities in (2) above by quantity indexes of output and input. In this case, the index of multi-factor productivity (MFP) is


This section is based on Ray (2004).


π1 =

Π1 Q y = , Π 0 Qx


where Qy and Qx are, respectively, output and input quantity indexes of the firm in period 1 with period 0 as the base. Different measures of the multi-factor productivity index are obtained , however, when one uses alternative quantity index numbers available in the literature. 2.1.2. Tornqvist index of total factor productivity By far the most popular quantity index number is the Tornqvist index measured by a weighted geometric mean of the
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